Back in mid-March during the closing minutes of the 2013 session, the New Mexico House passed a massive corporate tax cut package — with no floor debate and no questions permitted. And, in what most observers believe was an unprecedented breach of protocol, Department of Finance and Administration Secretary Tom Clifford was allowed to take the microphone on the House floor and speak. His budget wizardry was enlisted in a last-ditch attempt to calm the anxieties of legislators.

Why the heartburn? Well for one thing, hardly any of them had had a chance to read the so-called “compromise” bill that had sprung out of Finance Committee the night before. The House Taxation and Revenue hadn’t seen the bill — although it had previously rejected many of its key components earlier in the session. There were legitimate long-term concerns about fiscal impacts of such a far-reaching measure.

This was a bill that would slash the corporate tax rate and replace some of the lost state revenue by pushing the tax burden onto New Mexico counties and municipalities.

But never fear, they said! Tom Clifford is here.

And he won the day with his stand-up routine. The rules of the legislative process were stretched beyond the breaking point. Yet based on his confident assurances, the bill picked up enough Democrats to pass with time having expired on the clock.

Governor Martinez wasted no time in signing HB641 into law. Then her PR flacks kicked into overdrive, spinning the national news media with a tale of New Mexico’s bold Latina Republican governor whose consummate political skill brought an obstructionist Democratic legislature to its senses and got it to pass “her landmark tax reform.” (Subtext: Don’t you know presidential timber when you see it!)

Yesterday, almost two months after that day of infamy in New Mexico legislative history, we got the rest of the story. From the Albuquerque Journal:

Apology given for tax bill information
By Dan Boyd on Wed, May 15, 2013

SANTA FE – The top budget official in Gov. Susana Martinez’s administration apologized to legislators Tuesday for claiming in March that a massive tax package would have a positive fiscal impact to the state during each of the next five years.

Finance and Administration Secretary Tom Clifford told members of an interim legislative committee Tuesday the information he provided on the House floor during the final hours of this year’s 60-day session was based on a different version of the bill.

“I apologize for that,” said Clifford, who testified on the tax package during the frantic final minutes of this year’s session.

In contrast to Clifford’s original claim, an estimate released after lawmakers approved the tax package calculates that the legislation will cost the state more than $70 million in forgone revenue in the 2017 fiscal year. It will provide the state with about $15 million in additional revenue during the next two budget years before the fiscal impact turns negative, according to the estimate, which does not factor in possible future economic development.

At least one Democratic lawmaker said Tuesday that he did not think the tax package would have been approved by the Legislature if Clifford had originally portrayed the budget hit as negative.

“If he would have told membership the truth, I don’t think they would have voted for it,” said Rep. Jim Trujillo, D-Santa Fe, who voted against the bill.

You have no doubt watched, or at least heard of, the TED Talk videos. TED is a nonprofit, “devoted to Ideas Worth Spreading” and the TED.com website has compiled more than 900 short lectures — stimulating, provocative stuff from some creative, often quite brilliant, people.

Recently, however, the TEDnics in charge sparked considerable controversy, and some complaints of censorship, by refusing to post a talk by venture capitalist Nick Hanauer.

So what got Hanuer’s talk banned? Why it seems this very wealthy and hugely successful venture capitalist questioned what in 1 Per Cent circles is the holiest of holies — the proposition that, “If taxes on the rich go up, job creation will go down.” Hanuer doesn’t buy it. And he’s got charts and data to back his apostasy up.

You can read more about the brouhaha here and here and here and here, but first listen to the Sarah Kennedy’s original musical composition about the topic — her very first ukulele music video:

The battle to close the tax loophole for out-of-state corporations has been raging for a long time. But in the 2012 legislative session, something quite extraordinary happened.

After all of the years of organizing at the grassroots — and obstruction and disappointment in the corridors and committee rooms of the Roundhouse — a scaled-down version of this overdue tax reform (technically called “combined reporting”) actually passed both houses of the legislature.

Thus, the battle is sure to be resumed at the next legislative session.

In anticipation of this upcoming next round, the Center for Civic Policy (CCP) and the Southwest Organizing Project (SWOP) collaborated in sending out post-session mailers designed to educate those members of the public who reside in legislative districts represented by lawmakers who had opposed SB9. The mailers were a follow-up to pre-session mailers addressing the same issue.

One of those legislators was Senator Phil Griego, a long-time opponent of combined reporting by out-of-state corporations — and Chairman of the critical Corporations and Transportation Committee.

But if civic engagement is anything, it is about dialogue. And that’s what Clearly New Mexico’s Sarah Kennedy set out to do in this video. She called Senator Griego. Here’s what happened:

Sarah will be keeping us posted as this dialogue develops.

A postscript to this story:

It bears repeating. An essential component of the missions of the two organizations, CCP and SWOP, has been to educate and engage the public — and still further, to encourage this informed citizenry to engage in an accountability dialogue with their elected officials on those issues that impact their communities.

Will Governor Susana Martinez do the right thing and and sign Senate Bill 9 into law, closing the tax loophole for Big Box out-of-state retailers and give New Mexico businesses a fair shake in the bargain? Or… (shudder), will she veto the bill? (See “Countdown to Decision“.)

A combined reporting bill that would close the loophole that allows multi-state corporations to avoid paying income tax on profits created in New Mexico, passed a key Senate committee Wednesday night, the first hurdle in its effort to become law.

After over two hours of debate, the Senate Corporations and Transportation Committee passed SB 9 on a 5-4 vote with no recommendation. Sen. Phil Griego (D-San Jose) voted along with the Republicans on the panel.

Sen. Peter Wirth (D-Santa Fe) brought the law for the fourth straight year, this time with some tweaks. In addition to calling for combined reporting, Wirth’s law would reduce the top corporate income tax rate to 7.0 percent from 7.6 percent, a difference from the past years to entice votes that otherwise have gone against the bill.

Wirth and supporters of the bill say the bill would level the playing field for small businesses in New Mexico that do not have the option of paying corporate taxes in another state. Those who oppose the bill say it would make New Mexico less competitive and stop businesses from coming to New Mexico to do business.

“These small businesses are put in a position of competing against multistate conglomerates,” Wirth said, saying the large corporations can expense profits to other states instead of paying the New Mexico taxes.

In an attempt to make the legislation hit a more narrow area of businesses, Griego proposed an amendment that would only require retail outlets of more than 30,000 square feet to comply with combined reporting. Griego called it his “big box amendment.” It was aimed squarely at corporations like Walmart and Target while attempting to exempt other businesses like Intel Corporation. But it would also have exempted large fast food chains.

Wirth called the bill a sort of “reverse carveout” which “carves everybody out except big box stores.”

The amendment ultimately failed.

A common complaint of those who were opposing the bill, who were all lobbyists for multistate corporations, is that this bill would be favoring one class of businesses (locally owned businesses) over another class of businesses (multi-state corporations).

“I’m not the one pitting businesses against businesses,” Wirth told the committee. “We already do that in our tax code.” Wirth said this bill would level the playing field.

The bill now heads to the Senate Finance Committee where it probably faces a similarly tough debate. Nevertheless, clearing Senate Corporations was a notable achievement, given the committee’s long-standing and well-deserved reputation as the home field for corporate lobbyists.

Odds and Ends

One problem is that no one quite knows just how much the tax loopholes and carveouts cost the state in lost revenue. A bill requiring a tax expenditure budget, which would fully account for the effects of all the tax breaks, was vetoed last year — something that Sen. Tim Keller (D-Albuquerque) called a preemptive strike against tax reform. Gov. Susana Martinez will release her own tax expenditure budget, but, due to the veto, the next governor will not be required by statute to follow her example. Former Gov. Bill Richardson also vetoed a tax expenditure budget.

Former Sen. Kent Cravens came back to the New Mexico legislature, this time as a lobbyist for the New Mexico Oil and Gas Association. He objected to the term “loophole” to describe businesses paying taxes in other states on the revenue created in New Mexico, saying it “demonized” businesses for filing in an appropriate fashion. Cravens probably also objects to the terminology of the “revolving door” — a reference to the practice of former legislators immediately returning to the Roundhouse as corporate lobbyists.

Sen. George Munoz (D-Gallup) said that the bill would ultimately make corporations layoff workers to keep their profits up.

Though the room cleared out because of the late start to the hearing (SB 9 was not heard until after 6:00), the room still had many supporters of the legislation. When they applauded after public comment, committee chair Griego seemed visibly upset and instructed the audience that they were not in a city council or county commission hearing and to not burst into applause. Before coming to the state Senate in 1996, Griego served on the Santa Fe City Council.

Supporters of the bill asked questions of Frank Katz, the former General Counsel at the New Mexico Taxation & Revenue Department. Opponents of the bill tended to direct their questions to Dick Minzner, a lobbyist who has long opposed combined reporting on behalf of his clients.

Back in Washington, the revolving door is alive and well when it comes to individuals leaving government service to lobby on behalf of the very industries they once regulated. The same seems to hold true at the State Capitol in Santa Fe.

The agenda for last week’s meeting of the interim Revenue Stabilization and Tax Policy Committee featured a presentation by James O’Neill, a former assistant secretary and tax policy director for the state Department of Taxation and Revenue. The topic of his talk: Personal Income Tax and Corporate Income Tax Proposals-Council on State Taxation Ranking.

In his talk, O’Neill pitched three revisions to Tax Administration Act and the Corporate Income Tax Act, arguing that these suggested “fixes would increase our score” on the COST scorecard and aid economic development.

The COST to which he referred is the Council on State Taxation, a Washington-based trade association made up of nearly 600 multistate corporations engaged in interstate and international business. COST was formed in 1969 under the sponsorship of the Council of State Chambers of Commerce, an organization still closely linked to COST.

There has been a lot of coverage about the negotiated tax package passed by the Legislature during the special session to shore up the state budget, including this ridiculous claim in an Albuquerque Journal editorial from March 11:

“There is a big state income tax hike ($193 on average per filer, raising an estimated $66 million) brought about by elimination of the deduction for sales tax. It is, in fact, a tax on a tax.”

Presumably this is a reference to the measure that would disallow individuals who itemize from deducting their state and local taxes on their state income tax forms. What the Journal doesn’t tell you is that this will affect only about 20% of NM tax filers. The other 80% of the state’s tax filers use a standard deduction that doesn’t allow them to deduct these same taxes, so they would not be subject to what the Journal calls “a tax on the tax.”

The phrase “a tax on a tax” makes no sense in reference to this measure. What the Legislature did was remove a deduction that never should have been there in the first place.

New Mexico is only one of only a handful of states that currently allows this deduction, probably because most other states have figured out that allowing it doesn’t make any reasonable fiscal sense. Indeed, the only real effect of allowing the deduction has been to reduce state tax liabilities for wealthy individuals — that is, those most likely to itemize on their state tax forms.

New Mexico Voices for Children developed this table to clearly show who benefits the most from this policy (click on the chart to view):

According to the Taxation and Revenue Department’s analysis about 70% of the increased liability would come from households with an ADJUSTED gross income of $100,000 or more. Only 4% would come from households making less than $50,000.

Therefore, the Journal’s claim that removing this deduction would raise taxes “$193 on average per filer” is misleading at best.

A look at the facts serves to underscore the progressive nature of this policy. In fact, it is the only revenue enhancement in the tax package that actually makes the rich pay their fair share.

It is clear that whomever wrote the editorial didn’t do their homework on the actual policy but instead merely inserted some boilerplate talking points courtesy of corporate lobbyists who opposed the measure during the legislative session.